China Wheat Prices Sinking Despite Drought Impact on New Crop

China's wheat crop was hit by drought this year, but authorities are nevertheless scrambling to prop up sinking wheat prices. Several years ago, Chinese officials made farmers tear up fruit trees and cash crops so more food grains could be planted. Now farmers are seeing low yields and bad prices for the wheat officials forced them to plant.

As reported here last month, there have been reports of sustained drought conditions in parts of China's wheat belt. During an inspection of the wheat harvest in Henan Province last week China's Minister of Agriculture and Rural Affairs Han Jun acknowledged that parts of the largest wheat-producing province had experienced sustained drought, but he insisted that efforts to ramp up irrigation had reduced damage to the crop. Most of the article recounted Han's urging of officials and farmers to boost wheat yields and improve disaster prevention efforts.

A report by futures market analysts gave an evaluation of the new wheat crop that government officials fail to provide. They concluded that wheat yield this year declined between 4% to 15% in most districts of Henan and Shandong, China's two largest wheat-producing provinces. The most serious declines were in western and northern parts of Henan, especially in hilly and mountainous areas where irrigation was not feasible. The regional breakdown was consistent with earlier reports of serious drought. Artificial rainfall added moisture in a few areas, but wheat stalks became prone to lodging. On the other hand, many districts in Shandong and the Xinxiang district of Henan had steady or slightly higher yields this year. 

Wheat analysts interviewed by 21st Century Business Herald gave similar reports of poor wheat yields in southern parts of Henan and mountainous areas where irrigation was lacking. Analysts said wheat that was harvested had good quality as measured by test weights, high gluten, and low vomitoxin.

The decline in wheat yields did not reduce China's crop enough to prevent wheat prices from falling. The National Bureau of Statistics producer price index for wheat in Q1 2025 was down 3.7% from a year earlier. Average wheat procurement prices posted by China's Food and Commodity Reserve Administration in the first week of June are 2%-to-4% lower than a year ago in provinces of the major wheat production belt. The decline is steeper in western provinces Sichuan, Gansu, and Xinjiang.

An analyst told 21st Century Business Herald that wheat prices are under downward pressure due to weak downstream demand from flour and feed mills who are cautious in purchasing wheat. The average wholesale price for flour reported by the Food and Commodity Reserves Administration is down 10.6 percent from a year ago.

Wholesale prices reported by Administration of Food and Commodity Reserves.

On June 6, officials announced the launch of market intervention purchases of wheat in Henan Province at the minimum price level of RMB 2380 per metric ton. This is the first time the minimum price purchase program has been activated since 2020. 21st Century Business Herald said the decision to launch the intervention in Henan was due to prices falling below farmers' "psychological defense level."

Procurement prices reported by Administration of Food and Commodity Reserves.
Minimum price for wheat set annually by National Development and Reform Commission.

Economic Daily commentator Liu Hui emphasized measures authorities are taking to make it easier for farmers to sell their wheat. In addition to launching the minimum price procurement, Li cited this year's purchases of new wheat to "rotate" grain reserves, an increased number of purchasing points and offering of rest areas, cups of tea and heatstroke prevention medication at grain purchasing warehouses as measures to facilitate farmers' grain sales in the summer heat. Over the past two decades officials have often trumpeted measures to make grain sales more convenient. They fear a repeat of rural dissatisfaction that threatened to boil over in the late 1990s when government grain stations refused to buy grain, downgrading it, or by issuing IOUs as payment. 

The futures analysts' report estimated that area planted in wheat was steady this year. They noted that wheat area had expanded in 2023 and 2024 after officials used aggressive tactics to force farmers to convert land from fruit orchards and cash crops to grain fields. ...Are some of those farmers now annoyed that they are losing money on wheat they were forced to grow? 

Market analysts are also watching a convergence between sinking wheat prices and rising corn prices. Putting a floor under wheat prices may prevent corn and wheat prices from reaching parity, an event that might encourage even more use of wheat in animal feed.